NU Online News Service, May 31, 3:16 p.m.EDT

As the U.S. prepares for what forecasters say will be anotherabove-average hurricane season, Fitch Ratings says first-quarterglobal catastrophes and the spring tornadoes have already exhaustedmany reinsurers' 2011 catastrophe budgets.

In a report on the 2011 hurricane season, Fitch says insurersand reinsurers could face rating actions in the event of hurricanelosses depending on the size of the loss relative to capital,options pursued to replenish capital and underwriting prospectsgoing forward.

Fitch says, "While (re)insurers in Fitch's rating universe havewithstood recent losses, a hurricane that makes landfall andgenerates substantial insured losses could represent a morematerial strain on individual company capital positions."

Fitch notes that predictions from the National Oceanic andAtmospheric Administration, Tropical Storm Risk, Colorado StateUniversity, WSI Corp. and AccuWeather all point to an above-average2011 hurricane season, although predictions have been reviseddownward moderately. "Modest cooling of Atlantic Ocean surfacetemperatures and a somewhat diminished La Nina system are commonlycited contributing factors in the declining forecasts," Fitchsays.

However, Fitch adds that forecasts are calling for morelandfalling events along the Atlantic and Gulf coasts compared to2010.

Fitch says it is unknown what impact Risk Management Solutions'(RMS) revised model will have on pricing. "(Re)insurers arecurrently evaluating new model results and it is unclear how thisadditional information will affect pricing and management ofaggregate exposures," the rating agency says.

The revised model, Fitch explains, takes into account recentclaims data on how hurricanes impact inland areas well beyond thecoastlines. Fitch notes that in 2008, Hurricane Ike tracked acrossseveral northern Midwest states days after the storm made initiallandfall. "The key element taken into consideration in the updatedRMS model is the rate at which a hurricane decays after initiallymaking landfall," Fitch says.

But the rating agency says it is difficult to forecast thepricing impact because regulators retain some control over rateincreases, and insurers often combine model analyses, and not allother modelers have increased their loss assumptions.

Fitch also comments on Florida's insurance market as hurricaneseason approaches, noting that the new property insurance bill (SB408) that was recently signed into law is a "meaningful indicationof the political will to establish a more viable market for privateinsurers."

But Fitch adds that the bill "falls far short of fullyaddressing the inadequate premium rate levels and competitiveimbalances within the state." As an example, Fitch notes thatnothing in the bill prevents state-run Citizens Property InsuranceCorp. from competing with the private market.